The primary purpose of an M&A is to grow business, but improvements in operational efficiency and management of risk can be slower to come. After a merger, financial institutions typically integrate employees and infrastructure to avoid duplicate roles. Unfortunately, those changes in workforce and the system integration process could potentially delay loan processing and negatively affect customer satisfaction, not to mention standing with regard to secured assets. UCC processing and management is one of the key phases of loan processing. As banks consolidate, they must ensure they are managing their risk as they bring all the UCCs into one portfolio, and understand how they are affected and should be managed to improve efficiencies.
The right name is everything…
The risk of losing assets is ever present and because of that, the acquiring bank must be cognizant of the need to update the secured party names of the acquired banks’ liens. If the secured party information on the lien is outdated and the debtor files for bankruptcy, there is a chance that the acquiring party won’t receive the notification sent out by the bankruptcy trustee. In a medium-sized bank, even with an industry average of 5% of the loans defaulting, a potentially significant loss can be in store for the banks. By investing in a proper secured party information review and update, banks can mitigate this risk.
…and so is everything else
It’s critical as well to ensure that all debtor information is correct. This includes not only the names used in the collateral but where the UCC is filed. As part of due diligence during a merger, the acquiring party must ensure that the acquired party liens have correct information. If the changed debtor name is not updated in the UCC filing within four months after changes, then the bank loses its priority over that lien. It’s obvious that fixing any issues during an integration phase is imperative. After updating the liens and consolidating them, the acquiring bank can opt for automated monitoring to track the debtor activities and act within the allowed timeframe to minimize any risk.
Different organizations have different ways of filing, managing, and updating UCCs. When banks merge, it becomes challenging to bring the liens together and manage them with disparate processes. The lien information could be in the public sites and some could be managed by third-parties. The type of data maintained by various parties will be different. The discrepancy in the processes and the data quality may not provide consistent information for the banks to gain insights into their liens. Ideally, recently merged or acquired banks should centralize their lien management and ensure that the data quality is high. This can help them analyze their processes and take relevant steps for better efficiency.
A merger or acquisition increases the number of loans processed by the organization and therefore the lien portfolio grows as well. To sustain that growth and remain perfected across their liens, banks need to ensure that all the phases of the loan lifecycle can be efficiently processed. Sometimes, it makes sense to engage third parties that are highly specialized in managing some of the phases of loan processing. Although lien processing can be outsourced, integrating the loan origination system with the lien management system might be a better path forward. That process can ensure that the loan processing is streamlined, and customer satisfaction increases as loan processing times are shortened.
Find the right partner
Wolters Kluwer Lien Solutions Professional Services has 40 years of experience working with banks of all sizes to streamline complex lien operations, and the know-how to assist with the variables that come from a merger. To read more about our services visit our Professional Services web page or call us at 800-833-5778 x3.